Legislature(2001 - 2002)
02/20/2002 01:42 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
February 20, 2002
1:42 P.M.
TAPE HFC 02 28, Side A
TAPE HFC 02 - 28, Side B
TAPE HFC 02 - 29, Side A
CALL TO ORDER
Co-Chair Williams called the House Finance Committee
meeting to order at 1:42 P.M.
MEMBERS PRESENT
Representative Eldon Mulder, Co-Chair
Representative Bill Williams, Co-Chair
Representative Con Bunde, Vice-Chair
Representative Eric Croft
Representative John Davies
Representative Richard Foster
Representative John Harris
Representative Bill Hudson
Representative Ken Lancaster
Representative Carl Moses
Representative Jim Whitaker
ALSO PRESENT
Representative Gary Stevens; Tamara Cook, Director, Alaska
Legislative Legal and Research Services; Tim Benintendi,
Staff, Representative Carl Moses; Kevin Ritchie, Alaska
Municipal League, Juneau; Jack Kreinheder, Office of
Management and Budget, Office of the Governor; Bill
Rolfzen, State Revenue Sharing Municipal Assistance,
National Forest Receipts, Fish Tax, Department of Community
& Economic Development; Jim Kelly, Director of
Communications, Alaska Permanent Fund Corporation.
SUMMARY
HB 20 An Act relating to state aid to municipalities
and certain other recipients, and for the village
public safety officer program; relating to
municipal dividends; relating to the public
safety foundation program; and providing for an
effective date.
HB 20 was HEARD and HELD in Committee for further
consideration.
#HB20
HOUSE BILL NO. 20
An Act relating to state aid to municipalities and
certain other recipients, and for the village public
safety officer program; relating to municipal
dividends; relating to the public safety foundation
program; and providing for an effective date.
TIM BENINTENDI, STAFF, REPRESENTATIVE CARL MOSES, explained
that the establishment of a Municipal Dividend program
would provide Alaskan municipalities with a predictable and
reliable source of income with which to address basic
community needs. Currently, full funding for essential
services is unmet, in part, due to a declining State muni-
cipal assistance and revenue sharing general fund
allocations. Increases in local property taxes are not
always the answer, especially in many communities where
there is an insufficient tax base to draw upon.
Mr. Benintendi noted that HB 20 would repeal the current
revenue sharing and safe communities programs, thus
allowing for a general fund cut of approximately $51
million. It would fund defined basic services from the
surplus earnings of the Permanent Fund at a rate of $150
per dividend recipient, only after inflation proofing and
only after payment of individual dividends. The plan would
provide approximately $89 million dollars to municipalities
in the next fiscal year (FY03). It clearly defines the
uses to which funding may be applied, and would provide
minimum amounts for small municipalities ($45,000) and
unincorporated communities.
Mr. Benintendi added that it would not require a
constitutional amendment, nor would it require a vote of
the public. Approval of the municipal dividend plan is
fully within the authority of the legislature. Within HB
20, annual legislative powers of appropriation remain
intact. The bill's impact on an individual dividend check
is slight over time, with estimates by the Permanent Fund
Corporation at approximately $20 in nine years. Measuring
that against the value of adequate local police, fire,
emergency medical technicians (EMT's), health care, and
road maintenance services of benefit to individual
residents over the same time period.
Mr. Benintendi commented that given the State's inability
to substantially cut the operating budget, and given our
apprehension for raising new revenues, Alaska needs to look
at using surplus earnings of the permanent fund in some
effective way. HB 20 is, in part, what the earnings of the
permanent fund were destined for. The municipal dividend
program responds to the continued reduction in State
funding to municipalities, and would be an effective
counter to the popularity of a local tax cap solution. HB
20 is effective, reliable, and accountable. HB 20 is a
plausible component of a long-range fiscal plan.
Mr. Benintendi stated that the Community and Regional
Affairs version of the legislation changed the original
bill by changing the effective date to June 30, 2001. That
date needs to be changed for the program to begin this
year.
Mr. Benintendi highlighted the bill which will:
• Put new money into the economy instead of taking
it out by way of new taxes;
• Stand alone or package component of fiscal
reform/long-term plan;
• Retain annual legislative powers of appropriation
and program accountability is assured;
• Create $51 million dollars in general fund
reductions because of repeal of Revenue Sharing
and Safe Communities programs. More reductions
will be possible if other services in the general
fund are cut;
• Return considerable decision-making opportunity
to local governing entities, including the option
for local property tax relief.
Mr. Benintendi listed the program provisions:
• Public Safety foundation
• Road maintenance
• Ice road maintenance
• Fire fighting services
• EMT services
• Police services
• Education supplement
• Health facilities & hospitals
• Village Public Safety Officers (VPSO) services
• Minimum entitlement
• Municipal matching grants
Mr. Benintendi stated that HB 20 would apply to:
• 16 boroughs, 49 munis within boroughs, 96 munis
in the unorganized boroughs;
• Approximately 70 unorganized communities in the
unorganized borough;
• And if amended, HB 20 could apply to another 65-
70 unorganized communities within boroughs.
Co-Chair Williams advised that it was not his intent to
move the bill from Committee at this time.
Vice-Chair Bunde inquired about the use of the term
"entitlement" throughout the bill. He asked if there was
another word that could be used that would be equally
descriptive.
Mr. Benintendi acknowledged that consideration had surfaced
in discussion. He noted that there would be no objection
using a synonym for entitlement.
Vice-Chair Bunde asked if the money being moved into
education could likely become a property tax relief.
Mr. Benintendi responded that any option was possible. The
intent is for there to be a little "assist" on the local
level. The local assembly would determine the impact on
local property taxes.
Vice-Chair Bunde asked if the sponsor was willing to give a
more firm direction that the money be used for education
and not property tax exemption.
Representative Moses explained that the intent was that the
decisions be made on the local level.
Vice-Chair Bunde referenced federal guidelines regarding
local contributions. He asked how funding would be handled
in areas that have both VPSO's and local police.
Mr. Benintendi explained that the communities would be
eligible for the allocation from the police components of
the bill and the VPSO program.
Representative Davies referenced the spreadsheet and asked
for a general overview of that information. [Copy on
File].
Mr. Benintendi explained that those numbers are estimates
and might not quite meet the $89 million dollars.
Representative Davies inquired if the subsections might
total more than the draw.
Mr. Benintendi did not think so. He added that it was
possible that it could be less. He thought it would be
close either way.
Representative Davies referenced Page 8 & 9, and the phrase
"each individual would receive a service". He recommended
that terminology be narrowed.
Representative Lancaster inquired if an allocation would be
raised on the local level.
Mr. Benintendi replied that it could. He stressed that
local option would be made by local determination.
Representative Hudson referenced the flow of the money into
the new Municipal Dividend Fund managed by the Department
of Community & Economic Development. He asked if they
would be responsible to establish the regulatory processes.
Mr. Benintendi replied that they would. Many of the
existing provisions would remain in place. The bill has
not been designed to adjust the operational procedures in
any of the programs. The Department of Community &
Economic Development would have the authority to write
regulations. He pointed out the two zero fiscal notes. He
thought that there would be some minor adjustments to
accommodate the program. Whatever is in the budget will be
sufficient for the Department to manage the program.
Representative Whitaker questioned if the intention was
that the funding source would replace any general fund
expenditures.
Representative Croft referenced the revenue sharing amount
of $29 million dollars. He asked if there was another
source of money that could increase it to $51 million
dollars.
Mr. Benintendi requested that the Department clarify that
information. He elaborated that revenue sharing totals
approximately $30 million dollars, the VPSO amount is $7.5
million dollars, and the municipal capital-matching grant
is approximately $15 million dollars.
Vice-Chair Bunde asked if the Department of Community &
Economic Development would be administering the grant. He
foresaw each entity competing for the funds, and questioned
how the determination would be made regarding who gets the
money.
Mr. Benintendi replied that the municipality would make
that determination within the organized communities. In
the unorganized communities, the Department would recognize
a local council or other entity. There would only be one
choice in each community. He reiterated that the
Department would make the determination when a municipality
does not exist.
Representative Davies noticed that $15 million dollars was
listed as capital matching grants. He was surprised that
money was included, as he thought it was not being funded.
Mr. Benintendi understood that program would be funded with
what was remaining after the other two had been funded.
The amount would not be fixed from one year to the next.
Mr. Benintendi added that there could be years when money
available in the program would not be allocated as outlined
in the bill, as it would be determined on a prorating
basis.
Co-Chair Mulder clarified that through the proposed
program, by using alternative means, the Municipal
Assistance and Safe Communities would fund municipal
assistance and capital matching grants. He pointed out
that those two components currently compromise about $67
million dollars in the State's budget. Last year, that
amount was $51 million dollars. That amount would be
funded through the earnings reserve fund and not the
general fund.
Representative Croft asked the correct amounts for State
revenue sharing and safe communities.
BILL ROLFZEN, STATE REVENUE SHARING MUNICIPAL ASSISTANCE,
NATIONAL FOREST RECEIPTS, FISH TAX, DEPARTMENT OF COMMUNITY
& ECONOMIC DEVELOPMENT, advised that the revenue sharing
contribution for FY02 was $12.855 million and the safe
communities appropriation was $16.775 million, a total of
$29.603 million.
Representative Whitaker noted that there had been
indication from previous testimony that the earnings
reserve was unable to pay out, in any given year, the
amount formulated.
Mr. Benintendi recalled that there is a provision in the
bill which addresses pro-ration concerns.
Mr. Rolfzen noted that concern was addressed in Section 11,
Page 14, Line 11: "The amount is calculated by multiplying
$150 by the number of permanent fund dividends paid by the
Department". That amount would go into the municipal
dividend fund from which the Legislature would annually
draw money to pay for programs.
Co-Chair Williams directed his question to the Permanent
Fund Corporation regarding the Permanent Fund Earnings
Reserve. He commented that fund was an uncomfortable
source" for the proposed fund.
JIM KELLY, DIRECTOR OF COMMUNICATIONS, ALASKA PERMANENT
FUND CORPORATION, advised that the earnings reserve has
dropped in value over the last year due to the fact of the
$1 billion dollar dividend payout, the $700 million dollar
transfer of money to principle for inflation proofing and
the $600 million dollar decline in the market value of the
fund due to a negative 3.3% rate of return last year. This
year, the negative rate continues. For the last seven
months, the fund has had a total return of 1.25%. The
amount of unrealized income is declining as the value of
the assets decline. Managers are selling stocks and are
taking losses when selling those stocks.
Mr. Kelly pointed out that through January, the statutory
net income of the permanent fund has been $132 million
dollars, the same amount through the past seven months. He
added that he has seen times when that number was doubled
in a one-month period. The statutory net income is the
cash money generated from interest on the bonds and the
dividends on the stock, the cash flow on the real estate
and the net of gains and losses from selling securities.
That amount is added to the earnings reserve account that
the State had last year of $3.6 million dollars as of June
30th. From that combined total will come next year's
dividend and the inflation proofing, which will draw down
the realized earnings close to $900 million dollars. Based
th
on that, by June 30, the earnings reserve will be $2.6
billion dollars, which will be the amount that will be
available to the Legislature to appropriate.
Co-Chair Williams asked how long this type of financial
environment could last. He understood that the proposed
legislation would "eat" $89 million dollars of that amount
per year.
Mr. Kelly advised that he could not make that
determination. The best estimate of what the permanent
fund will make next year is an 8% earnings. If that amount
is earned, the balance will increase next year, which would
make the addition of $56 million dollars of realized gain
in the permanent fund. He stated that would be plenty to
pay for the municipal dividend.
Representative Whitaker spoke to the possible scenario
presented last week by the Permanent Fund Corporation,
which indicated a decline in the value of the earnings
reserve. He commented that the general fund draws from the
capital budget reserve (CBR), in the same manner that the
permanent fund draws from the earnings reserve. Given the
usage of the CBR by the general fund at the amount which is
being drawn, it appears that in FY05, there will be nothing
left in the CBR. Another significant funding source would
need to be found to replace it.
Mr. Kelly responded that in FY05, the best estimate is that
there will be $4 billion dollars in the earnings reserve
account. The Permanent Fund Corporation does not project
that account should diminish over the next several years.
The dividend will diminish but the earnings reserve account
should grow modestly as the fund grows at its 8%. That
account is available for appropriation by the Legislature.
Representative Whitaker disagreed, pointing out that since
$1 billion dollars per year is taken from that account, it
would not be sustainable. He thought that consideration
should be addressed before contemplating to spend $89
million dollars per year from that account.
Co-Chair Mulder agreed with the point presented by
Representative Whitaker. He asked how the proposal could
be a part of the puzzle in relationship to functions that
heretofore have been paid for through general funds. Co-
Chair Mulder thought that it could be a solution, as those
functions for local entities would decide where that money
goes. He believed that it would allow more flexibility as
it provides for the option of property tax relief. It
would put the money back into local communities for local
determination.
Co-Chair Williams requested that this discussion remain
open including the Permanent Fund Corporation and the
Department. He encouraged that the legislator's statements
be held until the end of the discussion.
Representative Croft asked how the bare market from the
past two years has affected the range of the earnings
reserve. That reserve has been much less what the State
has been use to receiving. He advised that every dollar
removed from the reserve, reduces the cushion of the
Permanent Fund.
TAPE HFC 02 - 28, Side B
Mr. Kelly explained that the permanent fund could be
expected to earn an 8% rate of return. Mr. Kelly added
that if that fund is inflation proofed, the State could
count on a 5% payout each year and will be money that is
available for any purposes.
Representative Croft interjected that the State is now
taking $90 million per year from the earnings reserve. The
impact will have a small effect on the permanent fund. He
commented that action would further increase the risk of
that fund over a period of time.
Mr. Kelly explained that given the outside limits proposed
by Representative Croft, there is a 25% likelihood that
could happen; however, there is a 50% likelihood that it
would be higher than that number. He acknowledged that
anything was possible.
Representative Croft asked what level of annual withdrawal
from the earnings reserve could the permanent fund secure
for an adequate cushion.
Mr. Kelly responded that given the existing requirements in
law for the use of earnings, the bottom would not be seen
for the next couple years even if the market stayed as low
as it currently is. He reiterated that the withdrawal
limit risk must be determined by the Legislature. He
advised that the State has a $2.6 billion dollar earnings
reserve account and a $21 billion dollar principle.
Vice-Chair Bunde understood that the money is available to
be appropriated through the hold harmless clause and then
placing it back into the corpus. He asked if the Permanent
Fund Corporation would take a position on the proposed
legislation and if they were comfortable spending those
reserves.
Mr. Kelly emphasized that the Permanent Fund Corporation is
on record stating that the State can count of $1 billion
dollars every year or the State can spend that much money
every year. To keep things the way they are, the State can
spend another $175 to $300 million dollars and the comfort
of the Corporation would be fine. The State could
comfortably take that amount every year. He added that
$1.2 billion dollars per year, over a 20-year time period,
provides twice as much money as the State will receive from
oil.
Representative Hudson commented that the earnings reserve
account is a composite of realized and unrealized gains.
The unrealized gains are the difference of the value of the
portfolio within the corpus of the fund when bought and the
value at this time. If nothing changes by 2004, he
questioned how much would remain.
Mr. Kelly expected that there could be $2 billion dollars
in each portion of the earnings reserve account.
Representative Hudson noted to receive that would require
selling off stock to get at the corpus of the fund. In
committing $100 million dollars a year for the needs of the
bill, would reduce the realized side of the portfolio.
Mr. Kelly responded that realized income comes from lending
permanent fund dollars to the U.S. government corporations
as they pay interest. It also comes from investing stocks,
receiving dividends and from investments in real estate
throughout the country, which generates a real estate cash
flow. When the permanent fund dividends are paid each
year, mostly realized earnings are used.
Representative Hudson understood that the bill assumes that
there is a certain amount of money in the portfolio. A
decision for the legislators is whether the $90 million
dollars will be drawn from the Permanent Fund Earnings
Reserve Account. He stated that this was a major policy
issue.
Vice-Chair Bunde spoke to the frustration of the
municipalities with unfunded mandates. He asked if there
was anything in the bill that would prevent or allow
municipalities to use monies to fund their senior property
taxes.
Mr. Benintendi stated that he did not believe so. There
are no prohibitions, noting that there is the flexibility
to do accomplish something like that.
KEVIN RITCHIE, ALASKA MUNICIPAL LEAGUE, ALASKA CONFERENCE
OF MAYORS, JUNEAU, voiced his appreciation to the Committee
for asking questions about the fiscal future of the State
of Alaska. Mr. Ritchie acknowledged that securing a plan
for the fiscal future of the State is the number one
priority for the Alaska Conference of Mayors. He agreed
that HB 20 is a part of a fiscal puzzle. HB 20 could
create a partnership between the State and municipalities
to provide the basic functions that people in communities
need and want. HB 20 is truly a second dividend program.
Mr. Ritchie commented that HB 20 does not create a new
system of distributing money. It is an accountable system
used prior to 1979. That system allowed for greater
accountability.
Co-Chair Mulder asked if the Alaska Municipal League (AML)
had been somewhat involved in the construction of the bill.
He wondered if the complicated formula would tie some of
the community's hands.
Mr. Ritchie acknowledged that they had helped with the
bill. He added that the municipalities would like to have
the money without the strings being attached. The way in
which the formula works is that the communities that
provide specific services will receive revenue sharing to
help them provide those services. It is an encouragement
for them to provide high quality police and fire services,
etc. There is a fair amount of flexibility in the bill in
that if a community wants to lower taxes, the bill will
allow them that flexibility. That has been one of the
goals of revenue sharing in the past. The bill also allows
the flexibility to move funding between education and
funding for other core services.
Co-Chair Mulder asked if it would "tie the communities
hands". He asked if it would be better to include line
items in the community and then fund them through the
earnings reserve.
Mr. Ritchie acknowledged that the communities would like to
have fewer obligations. Essentially revenue sharing is an
encouragement to provide high quality. There is
flexibility to allow the communities to lower taxes, which
was one the goals of revenue sharing in the past. It
allows the communities the flexibility to move money into
community education.
Mr. Ritchie added that the public likes to know where the
money goes.
Representative Croft asked how much the senior property tax
exemption costs.
Mr. Ritchie remembered that it was in the $24 million
dollar range. In response to queries by Representative
Croft regarding community jails, he stated that the FY02
cost was about $5 million dollars. There are probably
other topics of consideration that balance how big the
program could be and what services should be included.
Vice-Chair Bunde asked if the funding procedures would
encourage some of the unorganized communities to organize.
Mr. Ritchie responded that a strong revenue sharing program
would encourage municipalities to organize.
Co-Chair Mulder commented that functions are being funded,
however, the limitation in the funding is somewhat formula
driven. Right now, there is $150 per person put into the
formula. To put a lid on that funding could encourage
ineffective utilization. He mentioned the unintended
consequences.
Mr. Ritchie acknowledged that the cap would be $150
dollars. It is important to know that the money would be
used as an incentive and that it would help to off set and
encourage a municipality to provide more service.
Co-Chair Mulder asked if it the amount was scaled down to
$100 dollars per person, what effect would that have.
Mr. Ritchie explained that the manner in which the bill is
set up, the use of the money is a public safety foundation.
The balance of the funding in the account would be used for
capital matching grants. There is not a pro-ration program
that prorates money equally between the three programs.
Co-Chair Mulder commented that to change the amount, would
change the formula in order to allow for a similar
distribution of municipal assistance and revenue sharing.
Vice-Chair Bunde asked about the idea of AML to help to
market the bill throughout Alaska.
Mr. Ritchie replied that the "marketing" is very much on
the minds of all the municipalities. The municipalities
are truly subdivisions of the State and if the State does
not do well, then the municipalities do not do well. The
municipalities are interested in working with the
Legislature in carrying on a dialogue with the public
regarding the needs of the future.
Representative Whitaker asked if municipal assistance had
decreased since 1990.
Mr. Ritchie replied that it has. The general impact of
that is that there is less money and less service.
Sustainability is important to any plan.
Representative Moses stated that the question of
"marketing" is discretionary. He thought that an
additional $150 dollars should be put in. The communities
might want to start another permanent fund on a local
level. Those types of concerns suggest that spending
should be discretionary.
JACK KREINHEDER, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF
THE GOVERNOR, commented that at this time, the
Administration has taken a "neutral" position on the bill.
He stated that the bill should be looked at in the context
of solving the State's fiscal gap. He added that the
Governor has expressed a preference to using broad base
taxes.
Mr. Kreinheder asked if the State decides to turn to
permanent fund earnings, would municipal aid and local tax
relief be the highest priority use relative to education.
Mr. Kreinheder noted that regarding the subject of tax
relief, the questioned asked if it should be a local
option. Given the tough times that the State is facing, is
that the direction that the State wants to move toward. He
referenced SJR 23, the spending limit bill proposed by
Senate Finance Committee. If that amendment was enacted,
it provides a restrictive spending limit of 2% per year in
State spending growth. If HB 20 moves forward, about 1/2
of the allowable growth would be taken up by the increased
spending under HB 20.
Mr. Kreinheder spoke to the findings section of the bill,
which mentions that the municipal dividend would be paid
surplus earnings of the permanent fund. He pointed out
that there were no surplus earnings in the permanent fund
in 2001 or 2002. He acknowledged that they are expected to
come back over time; however, there is no guarantee that
there will be surplus earnings.
Mr. Kreinheder added that there might be confusion in what
HB 20 will save in general fund spending, about $51 million
dollars versus what will be spent under HB 20,
approximately $76 million dollars.
Vice-Chair Bunde commented that there is a difference
between the permanent fund dividend and the excess
earnings.
Mr. Kreinheder responded that the projections indicate that
the bill would not have a significant impact on the
dividends. Mr. Kreinheder stated that the Governor's
position is that any change in the use of the permanent
fund dividend should have a vote of the people.
Representative Croft thought that the spending cap should
protect the dividends.
Representative Moses asked if the Administration's position
would require a vote of the people for any use of the
dividend.
Mr. Kreinheder suggested that his testimony should be
characterized as things to keep in mind. He reiterated
that there is an Administrative preference for the usage of
broad base taxes.
Co-Chair Mulder understood that the formula was limited by
the amount of money per person. The bill prescribes $150
dollars per person. The formula cannot grow if the
Legislature does not raise it.
Mr. Kreinheder agreed and noted that the distinction is in
comparing what we spend today on the programs which totals
about $51 million dollars as compared to what the State
would be spending with the bill.
Co-Chair Mulder stressed that the legislation would have no
barring on the spending limit. Mr. Kreinheder understood
that the timing of the legislation combined with the
spending limit would count under SJR 23.
In response to a question by Representative Hudson, Mr.
Kreinheder explained that without an increase in municipal
assistance and revenue sharing, it would be a $51
million/$51 million dollar split. HB 20 would provide
substantially more funding than what the State is currently
spending.
Co-Chair Williams interjected that it was his intent to
create a committee substitute for HB 20.
Representative Hudson inquired if other pieces of the
fiscal policy considerations would be included.
Co-Chair Williams stated that HB 20 was a piece of the
puzzle. He understood that the Committee knew the
direction that they intended to go and that HB 20 is part
of that consideration. He added that it is only one area
of the consideration. Time remains to discuss those
concerns.
Representative Davies asked if Co-Chair Williams would be
working with the sponsor of the bill to develop the
committee substitute.
Co-Chair Mulder concurred that members do have ideas and
that they should note their concerns to the Chairman's
office.
Co-Chair Williams asked if anyone objected to the bill.
Representative Davies noted that he supported the bill and
that he did have suggestions. Moving money to the local
level should be discretionary. He emphasized that Alaska
is a State in which "one size does not fit all".
Representative J. Davies added that the effective date of
the bill has to be contingent on a total tax bill. By
doing it piece meal, the Legislature loses control of what
the plan should look like. He suggested that tying the
effective date with the enactment of all the pieces could
provide a good plan. He noted that his support of the bill
would be contingent on that.
Co-Chair Williams acknowledged that is the type of
discussion which is needed. He acknowledged that he was
willing to get the bill "out there".
Representative Croft added that not just the effective date
should be tied to the entire package as nothing in
isolation will work. He thought that individual bills will
fail individually but tied together, they could address
fiscal concerns. Filling the gap and assuring for some
type of fiscal future will be the "prize" for the State.
TAPE HFC 02 - 29, Side A
Co-Chair Williams agreed that there should be a discussion
regarding a "package deal".
Vice-Chair Bunde expressed his support for the concept of
the legislation. He thought that it could help the State
address the challenges that we face. He hoped that there
would be some way, using the proposed mechanism, for the
smaller communities to become incorporated.
Representative Lancaster commented that the bill would "do
good" as a stand-alone for the communities. It would give
the local communities some control over their local
funding. The local communities have lost some funding
every year. He noted that he would like to see HB 20
included with other fiscal policy legislation.
Representative Whitaker voiced his concern with the:
• Sustainability;
• Linkage to a more comprehensive package; and
• With the notion that the State would be saving
$51 million dollars while spending $75 million
dollars.
Representative Hudson saw HB 20 in light of the total value
of the earnings recorded by the Permanent Fund and how that
could be spun off the total value arriving at $1.1 billion
dollars to fill the gap. He asked what is the total amount
of money that realistically will be available on annual
basis. If the gap is left open, the State will be forced
to go back into the CBR. HB 20, the dividend and any
future use of the excess earnings will be in jeopardy. He
recommended that the Committee give serious thought and
consideration to using the whole amount of money for the
best combination of purposes.
Representative Harris pointed out that fiscal revenue
sharing is not an entitlement program that the State has to
do. He pointed out that the two largest communities have
chosen not to put on a sales tax. He understood that was
not a popular idea, however, it is an issue that is out.
If people want local control, they should raise the money
locally. He added that he was supportive of the
legislation but that if more money is to be given to the
local communities, there needs to be flexibility and
information, available for the State to look at.
Co-Chair Mulder pointed out that some places have chosen to
have high property taxes rather than paying sales tax. He
was troubled by the linkage question. He noted that HB 20
has merit on its own and that when creating a fiscal plan
too closely intertwined, if one straw should fall, then the
entire plan could fall.
Co-Chair Mulder added that he would be satisfied at the end
of the day, if progress has been made toward closing the
fiscal gap. He reiterated that the Committee should not
tie everything so closely together.
Vice-Chair Bunde commented that that the Committee should
be aware of the complications with the Internal Revenue
Service (IRS) taxation of the Permanent Fund if it is to be
used for a public purpose. He thought that the HB 20 use
of funds would be considered use for a public purpose.
Co-Chair Williams commented that the fund has been used for
public purposes since inception. He noted that a large
portion of that money stays in Alaska.
Co-Chair Williams indicated that his office would work with
the entire Committee on creating amendments for the
committee substitute.
HB 20 was HELD in Committee for further consideration.
#
ADJOURNMENT
The meeting was adjourned at 3:30 P.M.
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